Christie gets up close and personal with Assembly lawmakers, hammers out scheme that swaps gas-tax hike for 1% sales-tax cut -- and jettisons most of bipartisan TTF plan

Lawmakers had no problem sending a budget bill to Gov. Chris Christie yesterday, but finding consensus on a way to renew the state’s going-broke Transportation Trust Fund was a different story.

Without any debate or disagreement, a $34.8 billion spending plan proposed by Democratic legislative leaders for the fiscal year that begins on Friday passed both the Assembly and the Senate. Their action sends the budget bill on to the Republican governor, who is expected to make only modest changes in the next few days using the line-item veto.

But how lawmakers plan to renew funding for the Transportation Trust Fund in the remaining days before the current finance plan expires still remains an open question. It was also the subject of intense drama that lasted throughout the day yesterday and into the early hours of this morning.

Much of that drama resulted from Christie getting directly involved in negotiations with lawmakers, after spending months above the fray saying it was up to the Legislature to present him with a solution. The Christie-brokered plan, which centers on swapping a gas-tax hike for a sales-tax cut, passed the Assembly just after 12:30 a.m., and only after several breaks and long delays.

It bears little resemblance to a now competing plan backed by Sen. Paul Sarlo (D-Bergen) and Steve Oroho (R-Sussex), beyond a 23-cent hike in the gas tax and a gradual loosening of restrictions on retirement income from pensions and 401(k)s.

Everything else in the bipartisan Senate bill has been cast aside: increasing the Earned Income Tax Credit for low-wage workers, creating a new income-tax credit for contributions made to social-service charities, and phasing out New Jersey’s estate tax.

Christie made no secret of the fact that he did not like the Sarlo-Oroho plan, dismissing it as too generous.

But what happens next is still largely unclear because the Senate plan had been the preferred option until yesterday. And the Senate left for the day well before the Assembly took action, with Senate President Stephen Sweeney (D-Gloucester) sounding displeased about the emergence of a rival plan as he came out of a meeting with Christie before his house officially adjourned.

Also unclear is exactly what impact the new proposal to reduce the sales tax by 1 percent would have on the state budget once fully implemented, which would occur by the 2019 fiscal year. That’s because the trust fund is an off-budget account dedicated to funding road, bridge, and rail-network improvements, while the sales tax provides revenue for the budget’s general fund.

As much as $1.6 billion in revenue would come out of the budget under initial estimates, well above the projected $870 million cost of the Senate plan. That would seem to put the sales-tax cut on a collision with Democratic leaders’ plan to shore up the public-employee pension system. A proposed constitutional amendment that could go before voters this fall would see the state pension contribution more than double by the 2019 fiscal year before topping out at over $5 billion.

All of the uncertainty now sets up for a dramatic day in the State House on Thursday, the next day lawmakers from both houses are expected back for votes.

The new trust-fund proposal features a 23-cent gas-tax increase to raise revenue to extend the Transportation Trust Fund for another eight years at $2 billion in annual spending. And it emerged after it became clear that there were likely not enough votes in the Assembly to support the renewal plan that originated in the Senate earlier this month.

The new plan retains the proposed tax cut for retirees, but adds in a reversal of a 1 percent sales-tax increase that was implemented by then-Democratic Gov. Jon Corzine in 2006 after a six-day state government shutdown.

That hike left New Jersey with the second-highest state sales tax, tied with four other states. California, at 7.5 percent, has the highest.

But while sponsors of the Senate plan maintained the estate tax cut would help keep people at the highest income brackets from leaving the state for those without a similar tax, it was unclear for much of the day yesterday what the rationale was behind the newly proposed sales tax cut.

Just before holding the vote on the new plan early this morning, Assembly Speaker Vince Prieto (D-Hudson) explained that he believes the sales-tax reduction would put money back into the state economy. The renewed trust fund at $2 billion in annual spending -- the state has been spending about $1.6 billion annually -- would also spur economic activity, he said.

Some Democrats had also faulted the Senate’s plan to get rid of the estate tax, arguing it would mostly benefit the state’s wealthiest while the gas-tax hike would hit working people the hardest.

“I think this is a good Democratic bill, to be honest with you,” Prieto said. “The way I look at it is you’re putting money into people’s pockets and those people will put it back into the economy.”

Christie also pointed to an “economic boost” that he predicted would occur as a result of the sales-tax cut during an impromptu late-night gathering with reporters in the State House.

“I’m pleased with the actions that we took and I look forward to working with the Senate between now and Thursday to hopefully bring this issue to a successful conclusion,” Christie said.

But Assemblyman John Wisniewski (D-Middlesex) was not one of the Democrats who supported the new plan. He questioned whether the state would be able to make up for the lost revenue at a time when it already is not paying all of its bills.

“What we’re doing tonight is wrong,” Wisniewski said.

The new plan was also criticized from the right, with Assemblyman Jay Webber (R-Morris) predicting the gas-tax hike would equal roughly $850 million a year on New Jersey motorists.

“New Jersey's biggest problem is our crushing tax burden, and any 'deal', like this one, that makes the tax burden worse, is just a raw deal for New Jersey,” Webber said.

Still, the measure cleared the Assembly by a comfortable 53-23 margin. That followed a similar, 50-27 vote on the Democrats’ budget bill. In the Senate, the budget bill was approved in a 28-11 vote nearly 12 hours earlier.

Christie had favored a slightly smaller, $34.5 billion spending plan after a revenue shortfall opened up in May. But Democrats this month worked to add about $275 million in spending to Christie’s version of the budget, including inserting more money for social-service programs and senior property-tax relief.

The state constitution gives Christie the authority to remove spending and language from the budget using the line-item veto. And the constitution also requires that a balanced budget be in place by July 1.